The valuation of New Jersey’s American Dream mall has dropped by $800 million, dealing a serious financial blow to investors who hold municipal bonds secured by payments in lieu of property taxes (PILOTs).
The sprawling 3.5 million square-foot property—home to a theme park, water attraction, and indoor ski slope—was recently reappraised at $2.5 billion by East Rutherford for the quarter ending June 30. That’s a steep decline from its earlier valuation of $3.3 billion, according to an updated tax notice published on the EMMA platform of the Municipal Securities Rulemaking Board.
To support construction of the $5 billion project, New Jersey approved $1.1 billion in tax-exempt bonds. At the time, officials promoted the mall as an economic catalyst that would create jobs and generate long-term tax revenue for the state.
Roughly $800 million of those bonds are backed by PILOT payments that are supposed to be equivalent to 90% of what the property taxes would have been.
Last year, American Dream’s annual contribution to the bond trustee was $48.4 million—falling short of the $54.1 million required for annual debt servicing. To avoid default, the trustee had to tap into reserve funds to make the payments to bondholders.
With the current valuation set at $2.5 billion, this year’s PILOT obligation is expected to total just $36.5 million. As a result, the shortfall will once again have to be covered by reserve funds. A $27 million interest payment is due on June 1. As of December 1, 2024, the trustee had $38 million remaining in reserves, according to a financial filing.
“The total annual PILOT payment is now falling significantly below the original projections and various scenarios presented in the bond offering document,” said Lisa Washburn, a managing director at Municipal Market Analytics. “It seems increasingly likely that full principal will not be repaid on the bonds.”
Despite the mall’s declining value, the market price for American Dream PILOT bonds maturing in 2050 with a 7% interest rate remained relatively stable, trading at around 100.8 cents on the dollar on Wednesday. That’s only a slight dip from 101 cents on April 14, Bloomberg data shows. Investment firm Nuveen LLC is the largest bondholder, with nearly $700 million of the debt on its books.
Nuveen spokesperson Sally Lyden did not respond to a request for comment.
Located just across the Hudson River from New York City, the American Dream complex opened in October 2019, roughly 20 years after the concept was first introduced. But only months after its launch, the pandemic shut down much of the country, delaying the opening of its retail component until October 2020.
Although business has been improving, total sales still fall well short of expectations. The complex brought in about $650 million in sales in 2024, up 18% from the previous year, but still far below the $2 billion forecasted in a 2017 feasibility study for its first year.
American Dream is currently challenging its property assessments from 2019 through 2025, arguing that the COVID-19 pandemic severely diminished the site’s value.
Should those appeals succeed, the risk of delayed repayment to bondholders will increase. Notably, under the bond terms, a delay in paying principal or interest doesn’t trigger a default event.
The $800 million in PILOT bonds is scheduled to mature through balloon payments in 2027, 2037, 2042, and 2050.
If the trustee lacks sufficient funds when those payments come due, the bonds can be extended through December 1, 2056. However, if the debt remains unpaid by that date, bondholders are no longer entitled to any further compensation.
{Matzav.com}